Approach Resources: At Least 50% Upside

A small oil and gas driller, the company is sitting on valuable acreage in the Wolfcamp shale in Texas' Permian Basin. Why a sale is likely.

The Permian basin in West Texas has become one of hottest spots for drilling oil and gas in the U.S. Large companies, including Apache (ticker: APA), EP Energy, and ConocoPhillips (COP) have crowded into the area, drawn by its oily shale deposits and advances in horizontal drilling technology.

A small oil and gas outfit, Approach Resources (AREX), also has operated in the Basin since 2004, and its acreage and promising drilling...